Income Taxation of Small Business: Toward Simplicity, Neutrality and Coherence

Among the many contributions that Judith Freedman has made to tax law and policy in the United Kingdom and around the world, one of the most sustained and significant involves the regulation and taxation of small business. This article reviews Professor Freedman’s contributions to tax law and policy regarding small business, and evaluates Canadian experience with the taxation of private companies and their shareholders in light of Professor Freedman’s work. Part II summarizes Professor Freedman’s main conclusions regarding the taxation of small business, addressing both the taxation of similar economic activities conducted through different legal forms and the rationale and effectiveness of special tax preferences for small business. Part III examines Canadian experience with the taxation of private companies and their shareholders, illustrating the ways in which Professor Freedman’s concerns about structural tax differentials and tax preferences for small business have played out in the Canadian context. Part IV concludes with a few observations about how best to promote simplicity, neutrality and coherence in the taxation of small business

The Interpretive Exercise under the General Anti-Avoidance Rule

This chapter examines the interpretive exercise under the Canadian GAAR, contrasting this interpretive exercise with ordinary interpretation under the textual, contextual and purposive (TCP) approach, and considering the way in which the object, spirit, and purpose of the relevant provisions is determined in order to decide whether an avoidance transaction is subject to the GAAR. The first part distinguishes the interpretive exercise under the GAAR from the TCP approach, explaining that ordinary interpretation under the TCP approach is rightly constrained by the text of the applicable provisions in a way that the interpretive exercise under the GAAR is not. The second part addresses the way in which the object, spirit, and purpose of the relevant provisions is interpreted, criticizing the “unified textual, contextual and purposive” approach adopted by the Supreme Court of Canada in Canada Trustco Mortgage Co.v. Canada, and arguing that separate inquiries into a misuse of specific provisions and an abuse having regard to provisions read as a whole is not only consistent with the Court’s admonition in Canada Trustco against judicial reliance on overarching or overriding policies that are not anchored in the interpretation of the relevant provisions, but mandated by the text of subsection 245(4)

Recognizing or Disregarding Close Personal Relationships Among Adults? The Report of the Law Commission of Canada and the Federal Income Tax

Beyond Conjugality, the Report of the Law Commission of Canada on close personal relationships among adults, reviews a number of federal statutes in which legal consequences turn on specific kinds of relationships among adults, and it proposes a new methodology for assessing existing or proposed legal rules that employ relational terms in order to accomplish their objectives. This comment on the Report addresses its most significant recommendations regarding personal income taxation and income support in Canada: that the tax credit for spouses and common law partners should be repealed and that the GST credit should be fully individualized. Questioning both of these recommendations, the comment draws some general conclusions on the Report\u27s vision of close personal relationships among adults, at least as these affect issues of income taxation and support

Evidentiary Privilege for Hospital Quality Assurance and Risk Management: Assessing Statutory Reform

Quality assurance (QA) and risk management (RM) programs originated relatively recently in Canadian hospitals. Associated with the increasingly institutional framework for the delivery of health care, their development has been stimulated by tougher standards for hospital accreditation., the expanded scope of hospital liability for medical malpractice, and direct government regulation. While these measures promise substantial advancement in patient safety and the quality of medical care, considerable concern has been voiced that their potential is frustrated by the unwillingness of medical personnel to participate wholeheartedly in such programs without clear guarantees of confidentiality for the deliberations and recommendations of QA and RM committees. Consequently, it has been suggested that such communication should be shielded in subsequent public disclosure. While widespread support among both medical and non-medical communities suggests the relatively uncontroversial nature of such statutory protection, careful examination reveals several issues demanding cautious legislative treatment. This comment advances specific recommendations for statutory protection of the quality assurance and risk management process by reviewing the current basis for evidentiary disclosure, exploring the reasons for evidentiary privilege generally and in the context of QA and RM, and applying this analysis to the design of a specific statutory rule to protect certain categories of QA and RM information from disclosure during malpractice actions

Responses to Tax Treaty Shopping: A Comparative Evaluation

Over the last 40 years, the world has experienced exponential growth in international trade and investment, as well as the number of bilateral tax treaties which now number roughly 3,000. As the globalization of economic activity has greatly increased opportunities for tax avoidance and evasion, so also has the expansion of the international tax treaty network increased opportunities for taxpayers to take advantage of domestic tax rules and bilateral tax treaties by arranging their affairs in ways that reduce taxes otherwise owing or eliminate them altogether. Regarding many of these arrangements as abusive treaty shopping, the OECD and several member jurisdictions have adopted various responses to this phenomenon, involving the interpretation of treaties as the well as the introduction and application of anti-avoidance rules in domestic law and tax treaties. This paper reviews and evaluates these responses to treaty shopping, providing a comparative examination of developments in various jurisdictions. Part II discusses the concept of treaty shopping, defining this term for the purposes of this analysis, providing a few examples for illustrative purposes, and explaining why treaty shopping is problematic on policy grounds. Part III considers interpretive responses to abusive treaty shopping, examining recent cases and commentary on the concepts of “residence” and “beneficial ownership” as well as the existence of an anti-abuse principle inherent in tax treaties and international law. Part IV addresses specific and general anti-avoidance rules, both domestic rules and their relationship to tax treaties as well as anti-avoidance rules contained in tax treaties themselves. Based on this analysis, Part V provides general conclusions

The Supreme Court and the New Family Law: Working Through the Pelech Trilogy

The trilogy of family law decisions, released by the Supreme Court of Canada on 4 June 1987, represents perhaps the most important statement of the past two decades by Canada\u27s highest court on this rapidly changing area of law. Although decided under the repealed Divorce Act of 1968, judicial analyses of support and domestic contracts are likely to be little altered under the 1985 Act. Furthermore, that these cases reveal the Court\u27s underlying philosophy of the new family law as a whole suggests a significance that transcends specific amendments to the Act. With respect to the outcome of each individual case, specific pronouncements of legal doctrine, and the Supreme Court\u27s apparent understanding of the central features and purposes of the new family law, this comment is largely critical of the decisions. In particular, three arguments are made. First, while the Court\u27s conceptualization of support conforms to the norms of the new family law, the majority demonstrates insufficient sensitivity to the real barriers to the economic independence of spouses disadvantaged by a division of functions within marriage, and/or enduring consequences of the marriage. Second, the majority\u27s inadequate inquiry into the application of contract law principles to the family context and its related failure to distinguish clearly between the separate subjects of support and domestic contracts at issue in each case contribute to its formulation of a confused and inappropriate test to govern the exercise of judicial discretion under the Divorce Act to overlook the terms of a domestic agreement. Third, leaving aside this highly problematic test, the Court\u27s general posture of considerable deference to the terms of such agreements is neither required under the Act nor consistent with the central principles animating the new family law. An alternative approach to this exercise of the Court\u27s jurisdiction is then advanced. Finally, this comment considers the implications of the decisions for future cases involving domestic contracts

Taxing Inherited Wealth: A Philosophical Argument

This paper presents a preliminary argument for the introduction and design of a lifetime accessions tax: a progressive tax on inherited wealth levied on the cumulative lifetime gifts and inheritances of the recipient.\u27 As such, it contains an elaboration of the rationale for the tax and a presentation of distributive principles to govern its design. However, it does not include a detailed exposition of the actual design of the tax, nor an analysis of its feasibility in a given context. As a result, it provides an ethical blueprint for the design of an ideal inheritance tax without fully considering concrete questions of compliance and administration which any actual tax must ultimately address.\u27 Nevertheless, even this exercise should serve as a useful guide to concrete tax policy. In addition, to the extent that this paper strengthens the ethical argument for taxing inherited wealth and stimulates creative thinking about the actual design of such a tax, it will have served a useful purpose

The Abolition of Wealth Transfer Taxes: Lessons from Canada, Australia and New Zealand

When the United States acted to phase-out its estate tax by 2010, it joined a small but growing group of countries which have also repealed their wealth transfer taxes. In Canada, federal gift and estate taxes were repealed in 1972 and provincial wealth transfer taxes were abolished in the 1970s and 1980s. In Australia, State and Commonwealth wealth transfer taxes were repealed in the late 1970s and early 1980s. New Zealand followed suit in the 1990s, reducing estate tax rates to zero in 1992 and repealing the tax in 1999. This paper reviews the abolition of wealth transfer taxes in Canada, Australia and New Zealand, relying on public choice theories of politically efficient revenue structures to help explain the repeal of these taxes in each country. Part II outlines the essential elements of public choice theory and its implications for tax policy. Part III surveys the history of wealth transfer taxes in Canada, Australia and New Zealand, examining in detail the events leading up to the repeal of these taxes, and illustrating the relevance of public choice theory to their abolition in each country. Part IV offers brief conclusions on the significance of this experience for the future of wealth transfer taxation in these and other countries

Tax Avoidance in the 21st Century

Over the past few decades, several factors have contributed to what numerous revenue agencies and academic authors have characterized as a significant increase in tax avoidance activity. This paper considers both the causes of increased tax avoidance activity over the past several years as well as governmental responses to this phenomenon in key common law jurisdictions, notably Australia, Canada, New Zealand, the United Kingdom and the United States. Part 2 examines the concept of tax avoidance, distinguishing unacceptable or abusive tax avoidance both from illegal tax evasion on the one hand and acceptable tax planning or tax minimization on the other. Part 3 considers the causes of recent tax avoidance activity and its adverse effects for domestic tax systems. Part 4 reviews government responses to tax avoidance, examining both legislative reforms and administrative innovations. Part 5 considers whether these legislative and administrative measures are sufficient to the address the problem of tax avoidance in the 21st century, concluding that, although they can be expected to discourage some abusive tax avoidance, there is also much that remains to be done

Charities and Terrorist Financing

A decade after the bombing of Air India Flight 182 in June 1985, many Canadians were shocked to learn that the Babbar Khalsa Society – a militant organization dedicated to the establishment of an independent state in northern India, members of which are believed to have planned the Air India bombing – had been granted charitable status in Canada. Although the organization’s charitable status was revoked in 1996, reports also suggested that funds collected to support Sikh temples in Canada may have been diverted to support Sikh militancy in India. This article examines the relationship between charities and terrorist financing in Canada, reviewing Canada’s legal framework in order to evaluate its adequacy to limit the use or misuse of charitable organizations for terrorist financing. This evaluation is based on two important considerations. First, as experience with the Babbar Khalsa Society and Sikh temple funds sadly demonstrates, effective supervision and regulation of charitable organizations is essential to prevent their manipulation by individuals and groups who seek to exploit the legitimacy and fiscal benefits that these organizations enjoy in order to finance terrorism. Second, as many charities are small organizations with unpaid volunteers and very few have any connection with terrorist activities, charities should generally be viewed as allies in the struggle against terrorism rather than suspects. As a result, government supervision and regulation of the charitable sector should be proportionate and risk-based – emphasizing capacity-building and best practices to prevent the use or misuse of charitable organizations for terrorist financing, ensuring transparency and self-regulation to the greatest extent possible, scrutinizing transactions and organizations that pose the greatest risks for terrorist links, and limiting more serious regulatory sanctions to the rare instances where charities provide support to terrorist organizations